OriginColo

Having invested directly in real estate since 2005 and not knowing anything about your financial goals, I say yes!  I believe that real estate should be a part every portfolio, in one form or another, and you have likely invested in real estate much longer than I have; I’m talking about your primary residence—more on this later!  Similar to every investment strategy, your investment should be based upon your risk tolerance, personal goals, and how much time you want to commit.

Why should I Invest in Real Estate?

If you are like most of the population, you live in real estate, work in real estate, shop in real estate, there is real estate all around you.  Why not own some, or more?  Like me if you live in Colorado, you understand how real estate values can increase!  Many of our homes have increased in value over 15-20% or more per year for the past few years.  That kind of growth can be hard to find and can be tough to do in the stock market.  Yes, I remember the 2008 bubble-burst and crisis, and I know your property value was likely down; your overall investment portfolio was probably down as well, and, hopefully, you did not do too much stock trading at that time unless it was dumping all of you cash into the stock market!  If you did sell stock, you probably regret it; hopefully your property value prevented you from selling your home and doing what the typical investor does: Buying high and selling low.  If you hung onto your home through 2008, congratulations; you made a ton of equity.  Why not do more of that?  Just like stocks, bonds, commodities, and most investments, Real estate has its highs and lows, but long term values are up and to the right!   Unlike the daily/hourly/minute-by-minute volatility of the stock market, property value ups and downs are much more gradual—if you have high blood pressure, real estate investment may be a better option for you, especially if every time you look at the phone you see what your stocks are doing and immediately feel your blood pressure increase and cholesterol start to circulate!

Should Go Out and Buy a Rental Property?

Absolutely! What are you waiting for?  Okay, maybe we should discuss a couple investment options first.  If you plan to go out and purchase an investment property it is important to understand the upfront costs before you get blindsided.  As you likely know already, down payments can be a hefty lump sum.  When purchasing an investment property, it takes even more (at least for some of us that have taken advantage of lower down payments and opting to pay Private Mortgage Insurance (PMI) until we reach 78% LTV)! If you are like me, you may not have $40-50K to laying around that you want to use to jump head-on into a $200,000 real estate investment.  So, what is another option?  REIT!  If you do not already own a Real Estate Investment Trust, talk to your financial advisor, or, if you self-invest, look some up.  Owning a REIT is as simple as buying/selling stock at your favorite online discount trader (the same place where you make your $7 dollar stock trades).  Here are a few I own, in no particular order:

• AMERICAN TOWER CORP NEW REIT (AMT)
• SIMON PROPERTY GROUP INC (SPG)
• Ventas (VTR)

These REITs are considered growth and Income, and this is exactly what directly owning an investment property is, growth and income (increasing property value and rent).  SPG owns retail (malls and outlets) real estate in the US and Asia, AMT owns wireless tower sites for antennas and wireless services, and VTR owns hospitals and senior housing (according to the US Census Bureau, the 65 and older population is growing faster than the total US population).   REITs are also a great real estate investment that you can cost average as you save for you next investment-property purchase!

If you already own a home that would be a great rental property, you are in a great situation!  Since a down-payment on a primary residence can be as low as 3%, you are able to start your Real Estate Empire with much less cash and ultimately improve your overall return.  Your first step is to initiate the process of purchasing your next primary residence; just be sure that you are actually going to move into this property or you could be investigated for fraud.

Are you ready to take the plunge and purchase your next real estate investment property?  I suggest that you start building a team (Accountant, Lender (Bank), Real Estate Agent, Property Management Company, etc.) and use Excel to build an investment calculator or find a calculator online (search something like: rental property investment calculator) that you can use to quickly plug-in property information and determine if it meets your return requirements;  I suggest that you try to meet or beat your best year in your existing investment portfolio (401k, IRA, RIRA, etc.).  One of my average properties returns more than 20% on my cash, and it’s value has more than doubled in three years—I wish my IRA had returns like this!  Here are a few questions for your team (definitely not all inclusive but should get you started):

• Accountant – What are the tax benefits/burdens? What and how should I keep track of income/expenses? Is a LLC, corporation, or sole proprietorship right for me?
• Real Estate Agent – What is your experience with investment properties? What investment properties are available? Do you have suggestions on investment property lenders? Do you have suggestions on Property Management Companies?
• Lender – What are your rates, terms, and closing costs (use this info for your calculator)? How do I get prequalified?
• Property Management Company – What are your costs? What are your guarantees?  How many properties do you manage? Can I speak with your other clients (call them and discuss their satisfaction)?

As you explore opportunities around real estate investment it is important to consider more than just this short blurb.  You are bound to know someone that owns a second property—buy them a cup of coffee or lunch and pick their brain!  Look for someone that can give you both pros and cons—as with any investment there are defiantly pitfalls, and it is always best to learn from others mistakes.  Whether you own your home and already understand the benefits of real estate investment or you just getting started making your money work for you, make real estate a part of your portfolio!